August was a bad month for innovation.
If that wasn’t enough -- the CEO and driving force behind one of the most innovative companies in history resigned.
Perhaps the Steve Jobs resignation couldn’t have come at a better time for our industry. It should be a wake-up call for the rest of the technology industry. Steve Jobs is synonymous with innovation, and his legacy is marked with unbridled success. His focus on reinventing existing markets and creating new markets has led to some of the most significant developments in the history of personal computing.
Sadly -- during a time when our industry should be celebrating innovation -- we instead have been left with an alarming juxtaposition of an innovative leader in Jobs, and HP giving up on the most promising and innovative technologies in their portfolio for the sake of building out an old-fashioned enterprise software business.
HP is reaching deep down into enterprise software’s oldest bag of tricks, snapping up a large software vendor and buying their way into an IT business with cash and business maneuvers.
Acquisitions, vendor lock-in strategies and monolithic information technology is NOT innovation. While this industry desperately needs to shift the focus back to innovation, many of our peers are content to buy, sell and market their way to profits, without ever giving a moment’s notice to the effect such behavior has on our reputation as an innovative industry, as leaders, and as a major contributor in the global economy.
This is Bad for the Buy-Side
It’s a vicious cycle.
Autonomy was founded on great innovation, and the company exploded in value during the dot-com boom as UK investors bought in on the promise of the “British Google.”
However, innovation is very hard, and Autonomy found that in order to feed investors’ quarterly appetite, they needed to deliver regular topline growth. So the company embarked on a dizzying spree of acquisitions to bulk up revenues. Their “dot com” proceeds gave them lots of firepower to acquire. Autonomy rapidly moved to become the CA of content management, buying established companies with limited prospects and integrating disparate technologies with the Autonomy Idol “marketecture.” These offerings could now be cross-sold by a rapacious sales force to a locked-in customer base.
And that’s how Autonomy became the company it is today. Amazingly, the cycle is repeating itself once again -- and it’s reminiscent of nesting dolls, each jar consuming its smaller counterpart, until you’re left with just one, massive, extremely dense entity.
HP will now acquire Autonomy to form, what they hope to be, the next powerhouse vendor in enterprise software.
But it’s not going to be that easy. HP’s investment in Autonomy indicates that it has no intentions to innovate in the upstream IT market. They’re buying their way in, and they’re buying companies that have a long history of growing by tactical tricks that lock their customers into cross-sell and up-sell situations.
The market wants something different and customers deserve better. This is precisely the type of behavior that fueled the rise of open-source alternatives in virtually every major enterprise software category.
So What Exactly is the Monolithic Vendor Playbook?
The quick way to make money in IT is to buy a company that has a large, established customer base, and then use them to sell complementary products that you either own already, or plan to acquire in subsequent deals.
Basically -- once you have them sold on the proprietary platform -- you can force them to buy everything else that sits on it or adjacent to it. This works particularly well if you ensure that your platform doesn’t play nice with other vendors’ technology.
At that point, you’ve reduced the business strategy down to sales and marketing. And it’s no surprise that the average software company spends roughly 20-50 percent of the revenues on sales and marketing.
This approach is not true of every software company…but it’s the “status quo” that has kept buy-side advocates like Dennis Howlett, Ray Wang and Vinnie Mirchandani busy for the better part of the last few decades.
The mere fact that Ray Wang had to develop a “Software Buyer’s Bill of Rights” should be proof enough that our industry hasn’t been on its best behavior.
The sad part is that if we don’t cut it out, we’re headed for a worse fate than diminishing profits. Customers are already generally wary of vendors, and they have every right to be.
Open Source, Accountability and a Path Forward
I am, of course, the CEO of an open-source software company. So rather than extolling the virtues of open source, I’ll just tell you how “open source” affects my ability to sleep at night.
Because we are open source, we have to earn the business of our customers every day. They can build a comparable solution in-house with our free community platform…so it’s up to the employees at Alfresco to provide value and expertise that compels a CIO to purchase our commercial product.
Open source, for Alfresco, isn’t just about open standards and vibrant developer communities. That stuff is very important to us, but the big picture is that it’s about building a business that holds itself accountable to push the market forward, a business that is expected to innovate. Anything less and we’d be losing customers left and right. That’s the nature of our open-source business model.
Thus, I submit that open source is one way that software vendors have been able to keep the focus on innovation instead of lock-in, sales and marketing.
But open source isn’t necessarily the perfect choice every time, for every business. We’re not going to change the way the industry behaves by “open sourcing everything!”
Instead, we need to give customers a louder voice, more choice and competition, and the means by which they can bend the market to THEIR will.
It’s a classic power struggle. And customers have been losing far too often, for far too long.
Likewise, investors have been reaping the rewards, pushing for short-term profit over long-term viability.
We can call upon software executives to take a different path. But nothing motivates executives to change more than their wallets. If you’re a CIO and you even smell a hint of vendor deception, you should be running in the other direction. Don’t put up with it, don’t encourage the behavior, don’t put yourself in a position where your IT budget is held hostage by a smooth-talking sales guy.
Back to Innovation
I’ve been in this business for a long time. There were days when this industry was hell-bent on innovation. Somehow that got lost for a lot of leaders and investors during the dot-com bubble -- there was just too much profit to be had.
But the markets have changed, and if we can learn anything from the Apple turnaround story, it’s that you need to release a steady stream of innovative products and services if you’re going to succeed in the tech sector.
In the eyes of the customer, Apple is only as good as its last successful product. The moment the company accepted that reality, innovation took hold, sales went through the roof, and profits surged to record highs.
Apple focused on building incredible products that would delight their customers. And nothing else.
In contrast, I’m shocked that HP is resorting to the old playbook. The world doesn’t work that way anymore, and it accomplishes nothing more than to marginalize the hard work of the truly innovative software companies, and damage the industry’s reputation with customers.
If HP wants to turn the ship around, and set an example for the industry, they should get back to building innovative software and hardware themselves. That’s the only path to success and long-term stability in today’s market.
As an open-source advocate it’s perhaps strange to call out Apple’s virtues in innovation. Some would argue that Apple is the antithesis of openness, known well for going to great lengths to control its products and customer experience. Many open-source leaders would also point out that Apple has used open-source technology but locked down the results for its proprietary use. Apple accepts this is not to everyone’s liking, but it demonstrates the compelling nature of their innovations. And that’s what it comes down to -- their customers love them because they continue to innovate first and worry about revenues second.
Let’s get the focus away from incremental top-line growth by acquisition. Innovation leads to exponentially larger market opportunities anyway. Take a page from the Apple playbook -- your customers, partners and investors will love you for it.
Enterprise software is still full of exciting technology and innovation…but we need to collectively double down on innovation if we’re going to succeed.
Editor's Note: You may also be interested in reading:
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